From the Editor

Dear Ladies and Gentlemen,

Colleagues, Friends,

We are delighted that you liked our Guide on the Localisation and Setup of Production in Russia. Now we would like to draw your attention to the second part of the guide. This time colleagues from our Moscow office drafted the guide jointly with the Ministry of Industry and Trade of Russia and the Industrial Development Fund in order to provide you with some cogent and compelling arguments for relocating production facilities to Russia.

Russia is a country with vast resources and continues to attract significant foreign direct investment. The country is interested in upgrading its production facilities and bolstering the country's competitiveness on the global market. And this is the reason why foreign investments are actively welcomed, and significant opportunities have opened up in different sectors.

Whereas the first part of the guide focused on the so-called special investment contract, the second part addresses specific aspects of certain industrial sectors. What rules must be observed in the mechanical engineering or pharmaceuticals sectors, in information technologies or the manufacturing of agricultural equipment? What level of localisation is required and what incentives are available? We provide you with an overview of the most important sectors and share our experience of the successful implementation of localisation projects.

Furthermore, once again you will find an English translation of the main regulations. They will prove particularly valuable when you have to take the right decision. Should you have any questions, please do not hesitate to contact the publishers.

We wish you every success in Russia!

Falk Tischendorf

Attorney-at-Law

Managing Partner of BEITEN BURKHARDT's Moscow Office,
Arbitrator at the ICAC at the CCI of the Russian Federation

Dear colleagues,

Thanks to our joint efforts we are establishing a favourable business climate aimed at attracting investments to the real sector of the economy and incentivising the establishment of state-of-the-art competitive production facilities in Russia. This is a mutually advantageous partnership which facilitates a significant increase in trade turnover between our countries and enables us to consolidate industrial relations.

The second guide for foreign investors that we present to you was the result of open and constructive dialogue between business and the state. The guide contains information on the key priorities of our industrial policy, the criteria for determining products which are recognised as "Made in Russia" and the localisation parameters.

The Ministry of Industry and Trade of Russia continues to focus on improving the long-term instruments available to attract investments and to develop the existing support system, taking into account the opinion of the business community. That is why a separate section in the guide is dedicated to the updated special investment contract mechanism to be launched in 2020. The main goal of this mechanism is to support investments in the development and localisation of cutting-edge technologies.

Over 50 per cent of the projects launched under the special investment contracts to have been signed to date are being implemented with the participation of foreign companies. Six of the special investment contracts were concluded with representatives of major German businesses. We expect SPIC 2.0 to prove even more popular with investors interested in the production of high-tech export-oriented products. You will be able to find information on all the relevant regulations by simply scanning the QR code.

For my part, I can assure you that the Ministry of Industry and Trade of Russia and the Industrial Development Fund will remain as open as possible to the business community. I expect to see a continuation of our productive joint work!

Deputy Minister of Industry and Trade of the Russian Federation

V. S. Osmakov

Dear colleagues!

The Russian state has made a priority of the development of industry, the localisation of production facilities in the country, the implementation of new export-oriented projects, and also the transfer of modern technologies. These plans can be achieved in close cooperation and dialogue with our foreign partners.

As part of its support for industrial production facilities, and also for the deployment of cutting-edge technologies, the Industrial Development Fund focuses on the following key areas: it provides special-purpose loans at interest rates of 1 %, 3 %, and 5 % p.a., is the expert and consulting organisation for the special investment contract mechanism, and offers a comprehensive range of advice on other industry support measures.

The new publication of the Guide not only updates the main industry trends and legislation regulating production localisation processes, but also reflects the key changes to the special investment contract mechanism, whereby investment projects should now be aimed at the deployment of cutting-edge technologies that make it possible to manufacture products in Russia that are competitive globally.

The Guide that you hold in your hands will enable you to find out about a wide range of financial and non-financial support measures for the manufacturing sector, enshrined at the level of legislation. Russia is creating a favourable legal climate and an advantageous, transparent environment for investors who wish to further increase the level of localisation in our country and ramp up investments in the establishment of high technology cutting-edge production facilities. Moreover, the Guide will help you implement such projects.

In the meantime, a smart system of state support measures has been put in place in Russia, which will allow the implementation of investment projects in all key industry sectors to become more efficient. We at the Industrial Development Fund are interested in growing industrial production in the country and helping foreign investors to localise production in Russia, and we are always ready for constructive dialogue!

Roman Petrutsa

Director, Industrial Development Fund of the Russian Federation

Dear Ladies and Gentlemen,

You will not find a more export-oriented economy than the German economy. Every fourth workspace is directly dependent on the successful exports of German companies. A number of companies obtain a significant share of their incomes abroad. This share is particularly high for the so-called global players. In the case of Volkswagen it accounts for 80 % of total income, and in the case of the pharmaceutical giant Bayer approximately 90 %. In just the past ten years from 2003 to 2013 German exports increased by 65 %. The share of international business is also constantly increasing in the small and medium-sized business and family business segments and already for the sole reason that component suppliers are following in the footsteps of OEM manufacturers.

However, irrespective of the above, more and more family businesses and medium-sized business are focusing on foreign countries. Almost 40 % of medium-sized businesses actively work abroad, often on several markets at the same time, with a tendency to increase in size. Another 20 % plan to access foreign markets in the near future. Furthermore, market entry strategies differ: from pure exports on ex works terms and the organisation of a sales network abroad to localised production.

The decision to opt for the localisation of production is attributable to a company's strategic interests, such a proximity to the client, the size of the market, staff expenses, wages, logistics, and also avoiding exposure to foreign exchange risks. However, on occasion this decision is due to the specific business framework, as is the case in Russia. Whoever localises production in Russia enjoys significant advantages compared to their competitors. The status of local manufacturer provides an opportunity to participate fully in state tenders, provides access to subsidies or tax breaks, and also offers a chance for the company to participate in major national projects. If you have any questions on this topic, you can always contact the department for small and medium-sized businesses at the German Eastern Business Association.

In the second part of the Guide for Investors "Localisation and Setup of Production in Russia" you will find out how to successfully organise the localisation process. I wish you a pleasant read!

Oliver Hermes

Chairman of the German Eastern Business Association

Dear Ladies and Gentlemen,

It should come as no surprise that the German consulting firm, which brought you the extremely successful two-volume guide for investors in the autumn of 2016, has now issued in record time a reference guidebook with new provisions on special investment contracts (SPIC 2.0.). We Germans are not much for talking - instead, we get right down to business. And we do so by working closely and constructively with our Russian partners.

Since the breakup of the Soviet Union, no other country has invested as much as Germany through its companies in the factories and assembly plants of the largest country in the world. According to the data of the German Bundesbank, in 2018 alone direct German investments in Russia topped EUR 3.2 billion. German companies have concluded more special investment contracts than the companies of any other country. It is not by chance, then, that the first special investment contract was concluded with a German company...